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Love and the Dotted Line: the Benefits of a Prenuptial Agreement

It may not be the most romantic part of your blooming relationship, but a prenuptial agreement can protect your financial future if that bloom fades. Whether you're Donald and Ivana or John and Jane, here's what you need to know before walking down the aisle.

Most people take marriage seriously, and hold high hopes for their new relationships. Little wonder then that prenuptial agreements aren’t high on any betrothed’s desirability list. After all, thinking about a prenuptial agreement is often feared akin to planning the end of a relationship before it’s even begun. But in these times of soaring divorce rates and uncertain financial stability, it only makes sense that people should be concerned with such practicalities, dreary though they may be. While deciding between a Caribbean or a Mediterranean honeymoon is undoubtedly more pleasurable, if there’s any uncertainty about your forthcoming marriage, financial or otherwise, then you should consider creating a prenuptial agreement.

Simply put, a prenuptial (also known as an antenuptial) agreement is a legal agreement signed by you and your future spouse. Normally, they deal with straightforward financial and legal issues in the event of a divorce or a death — what will be done with the house, any stocks, bonds, or other such marital assets. They might also include some extras like custody arrangements, spousal support, or even what happens to the family pet. According to Lester Wallman, a partner in the Manhattan law firm of Wallman, Greenberg, Gasman and McKnight, and author of Cupid, Couples & Contracts: A Guide to Living Together, Prenuptial Agreements, and Divorce (MasterMedia, $12.95), an agreement can be specifically tailored to the couple’s needs and wants. Finances are generally the main focus, but even the pettiest details can be included. “One client insisted the toilet seat be put down,” says Wallman. This example, while extreme, illustrates a point: anything and everything under the sun can go into a “prenup.” So if you feel the need to restrict your intended’s bathroom privileges, or outline a schedule for walking the dog, go ahead and have it included. Just be aware that such “extras” can be legally murky and expensive, and so should generally be considered as more psychologically reassuring than legally binding.

Although most agreements are relatively straightforward, this doesn’t mean that they are simple. The emotional cost alone could be prohibitive: 10% of people who begin to pursue a prenuptial arrangement decide against the marriage because of the strain it causes. Arguing that such relationships wouldn’t have lasted anyway doesn’t make the concept any less daunting, either. “Prenuptial agreements are very stressful,” warns Curtis Bennett Ross, a Chicago CPA and attorney in private practice. “But they are also very legitimate, especially if one of the pair has been through divorce in the past.” It may be seem a foolish idea to put your relationship at risk over finances, but consider this: if the two of you are unable to sit down and talk rationally about your needs and fears when your relationship is good, then how bad might it be if things ever turn sour?

The Dotted Line Dilemma

While prenuptial agreements became popular in the 1980s, there’s still a misconception that unless you’re a jet-setting celebrity dealing with millions of dollars in assets, there’s no need for such an agreement. “Anyone in any economic bracket needs to talk about money issues. There are a lot of assumptions made otherwise,” says Jacqueline Rickard, a trained family mediator and the author of Complete Premarital Contracting: Loving Communication for Today’s Couples (M. Evans and Company, $12.95).

“Middle-aged people with children from prior marriages and/or substantial assets are the most likely to be interested in prenuptial agreements,” says Jerald Kessler, a Chicago-area attorney and mediator in private practice. “Often, they’re in their second, third, or thereafter marriage, or they have adult children who are concerned.” Often the worry is about “gold diggers” who are after money or property, especially if there is a large age gap between the couple. In such situations, a prenuptial agreement can put relatives’ minds at ease while at the same time representing the honest commitment the two have for one another.

Some people who create prenuptial agreements fall into the fabulously wealthy category, but there’s also a growing trend for young people — who may be giving up an apartment, a job, and a way of life as a result of their marriage — to get it in writing before they say their vows. “Since most short-term marriage break-ups don’t include alimony or property settlements, they’re concerned about losing everything if the marriage breaks down,” says Wallman. “In such cases, their spouse will give them a lump-sum payment so that they don’t end up at a lower economic level than when they started.” This last point overturns another standard preconception regarding prenuptial agreements: that they help the wealthy partner at the expense of the one who is less well off. Contracts can protect assets, but they can also remove the fear of financial ruin for a less-well-off spouse. Ultimately, prenuptial agreements present security for anyone who has concerns about his or her impending marriage.

Another notable aspect of prenuptial agreements concerns inheritance. Nancy Caruso Pascucci, a Chicago attorney with 20 years of experience, puts it succinctly: “You can disinherit your own children in your Will, but you cannot disinherit a spouse.” The only way that you can guarantee your future spouse will receive as much — or as little — as you wish is to spell it out in a prenuptial agreement. Without such an agreement, your wishes are unlikely to be honored if they are out of the ordinary, even if your Will expressly lays it out. Keep in mind, however, that a prenuptial agreement isn’t an opportunity for greed. In order for it to be valid, it needs to be fair and equitable (see sidebar “Will the Agreement Stand?” at the end). No contract, no matter how well prepared, will allow you to take advantage of your spouse-to-be.

Details, Details

So you’ve weighed all the emotional difficulties against the possible risk, and you’ve decided that you need to look into arranging a prenuptial agreement. The next obvious question: where to go from here?

“The very first thing you should do is to talk to your lawyer. I strongly recommend that this step be taken even before you talk to your intended about the idea,” says Bennett Ross. “It is often the case that assets are not substantial, and it may be possible to protect those assets through other methods.” Don’t consider such an idea sneaky or deceitful: there is no way to estimate the potential hurt you could inflict on your partner by mixing love and finances. If such a painful combination can be avoided, it only makes sense to do so.

If your lawyer does recommend creating a prenuptial agreement, the next and possibly the most difficult step is to speak to your partner. It’s a daunting task, but if approached properly, it doesn’t have to be fatal to the relationship. “Prenuptial agreements, as a process, can be incredibly positive,” states Rickard. “It guarantees that each person is heard, listened to, and supported.” There might be anger or frustration along the way, but the process also offers a perfect opportunity to discuss each other’s needs, wants, and fears. Insecurity about discussing such an idea is only natural, however, and if you feel you can’t broach the topic without help, Bennett Ross suggests that you consult a therapist to help you prepare yourself emotionally for the discussion.

Once you jump the hurdle of broaching the idea, the next thing the two of you should do is to make a list of what you want to accomplish with your contract. Don’t attempt to make it sound legal; just outline what you feel is important. Consider such things as:

in the event of a divorce, who will pay the bills?

how will assets be divided?

how much (if any) spousal support will be given, and for how long?

what will happen if one of us dies?

are there any “extras” we want to include for our own mental comfort?

You might also want to discuss a date to have your property financially evaluated, and whether or not this document will have an expiry date. It might very well be that the concerns you have right now will disappear in a few years — in which case, you can set the contract up so that it will automatically modify or expire. For example, the agreement could state that a specific amount will be paid if the marriage ends within the next five years. When that time is up, the contract could stipulate a different payment amount, a new division of assets, or it could even expire — whatever you feel is necessary for your comfort. Remember that all of this is preliminary, and that you will each need to sit down with your respective lawyers to hash out a legal and mutually acceptable deal. But no matter what you decide to do about your prenuptial agreement, don’t forget that it’s ultimately for your own and your future spouse’s peace of mind — and it should do nothing but good for your future together.

Will the agreement stand?

If you want your prenuptial agreement to stand up to legal scrutiny, read this section carefully before consulting your lawyer. It doesn’t mean that your spouse can’t or won’t challenge the agreement if your marriage breaks down, but your prenup has a much better chance of standing up in court if you follow these steps:

Full and honest disclosure of assets and liabilities. “If there is a failure to make full representation of income or assets, or if he or she misrepresents assets, then the contract can easily be overturned by a judge,” warns Lester Wallman, an attorney and author of Cupid, Couples, and Contracts. Be meticulous about this step. If a contract is contested, and a judge finds out that you conveniently forgot to note the classic Jaguar you have in storage, or the Tiffany’s diamond necklace tucked away in a safe deposit box, the agreement is unlikely to stand.

Separate legal representation. There is no better way to guarantee an overturned agreement than for both people to use the same lawyer. As with any business proposition, be sure that each of you has your own council to advise you about what’s in your best interests. If you’re the one proposing the agreement, and you have more money than your partner, this can also be an opportunity to prove that you have his or her best interests in mind. “Make it as easy as possible for them by offering to pay for their legal fees,” says Chicago attorney and CPA Curtis Bennett Ross. But let your spouse-to-be choose his or her own lawyer. Offering to pay for a lawyer of your choice provides another opportunity for an agreement to be thrown out of court.

Give it plenty of time.Do not have a contract drafted and then present it on the night before the wedding, and do not say, “If you don’t sign, we’re not getting married.” As attorney Nancy Caruso Pascucci says, “A good contract depends on the people seeking to protect their assets being calm and rational.” Bullish tactics will invariably render any documents void because they were signed under duress. As with anything of magnitude, planning is essential. Ideally, all details should be finalized and any papers signed months in advance of the ceremony.

Be fair. While a prenuptial agreement can include nearly anything you can imagine, it cannot be unfair. The papers might say that in the event of a divorce you get custody of the children and all of the property and assets, while your spouse gets nothing but the clothes on his or her back. But don’t expect such outlandish demands to be upheld. “If the agreement is unconscionable, it will not stand,” says Lester Wallman. It’s in your best interests to play fair. Why go through all of the emotional wranglings and expense of drafting a prenuptial agreement if it isn’t going to stand?